UBS has raised its three month gold forecast from $1,400/oz to $1,600/oz. This rise was a result of increasing gloomy global economic outlook. This weakness in global data is becoming a good argument for owning gold especially during the second half of the year.

LONDON (MarketWatch) -- Swiss bank UBS AG UBS -1.30% has raised its three-month gold forecast to $1,600 a troy ounce from $1,400/oz, citing an increasingly gloomy global economic outlook and a back-log of investors waiting to scoop up the metal at lower prices.

"Weakness in global data is fostering more optimism on gold in the second half of this year and any downside moves should be limited given concerns about the economic picture," said UBS analyst Edel Tully in a note.

"While investors are reluctant to buy gold right now as it trades close to the record highs of $1,577/oz, there is certainly investor money waiting on the sidelines for a pullback below $1,500/oz."

At 0849 GMT, spot gold traded at $1,543.43/oz, up just 0.1% on the previous session.

A raft of poor economic data from the U.S. in recent weeks--culminating in a speech Tuesday by Federal Reserve Chairman Ben Bernanke in which he described economic growth in the world's largest economy as "frustratingly slow"--have damped risk appetite across the markets, heightening gold's appeal as a traditional hedge against insecurity.

Gold could also find support if the European debt crisis "stumbles along without a solid solution," and central banks continue to add the metal to their reserves, said Tully.

In April, the central banks of Russia and Mexico purchased 441,000 and 190,320 ounces of gold respectively, according the International Monetary Fund's statistics on international reserves. As a result, Russia's total gold reserves were lifted to 26.52 million ounces, up 4.64 million ounces on the year, while the gold holdings of Mexico's central bank rose to 3.41 million ounces.

However, while UBS sees an increasingly gold-supportive macro environment in the second half of the year, it predicts a possible gold reversal in the summer as the U.S. Federal Reserve wraps up its quantitative easing program and demand hits a seasonal lull.

Current high cross-asset correlation also means that gold remains vulnerable in the case of another commodity-wide tumble, Tully said.

As a result, UBS has lowered its one-month gold forecast to $1,475/oz from $1,500/oz.